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Managing Greater Scrutiny of MNCs in China

How MNCs Operating in China Can Use Communications to Ensure Reputational Risks Do Not Hinder Growth

Strategic Communications

April 8, 2014

When New Zealand’s premier John Key met Chinese President Xi Jinping at October’s APEC summit, their discussion was led not by strategic geopolitics, but by milk formula. The issue topped the agenda because of a food safety scare at Fonterra, New Zealand’s biggest dairy producer. This is a sure sign that multinational brands operating in China have entered an era of heightened scrutiny and political interference, making a review of issues management and crisis strategy a priority for those keen to protect and promote corporate reputation.

A government drive against a range of business violations, including price fixing, ‘consumer rights’ violations, bribery and corruption, has brought some of the world’s biggest brands, as well as domestic players, into the crosshairs of a crackdown on corporate abuses. The harsh reality is that foreign companies operating in China make easier targets and they should be prepared for orchestrated attacks against them. Furthermore, recently effected consumer protection law could mean there are further challenges ahead.

As well as concentrating on certain categories of corporate abuse, state-led probes are focusing their attention on specific industry sectors, including automotive, consumer electronics, dairy, pharmaceuticals and, to some extent, retail.

Over the course of last year, dairy companies were fined more than US$100 million for price-fixing. Fearing an unwinnable war, all of the brands involved reduced their prices. Also in the dairy industry, in what became one of the most high profile brand crises internationally and an illustration of how nationalism can fan the flames of crises, Fonterra announced that a botulism-causing bacteria had been detected in a batch of whey protein used to make milk powder, prompting a worldwide recall.

China, New Zealand’s biggest dairy customer, buying NZ$3 billion (US$2.5 billion) worth of products annually, immediately suspended almost all New Zealand milk powder imports, with Russia and other countries following suit. Despite Fonterra’s public apology and strong reassurances – the scare turned out to be a false alarm – the Chinese state-run media wasted no time in slamming not just Fonterra but New Zealand's entire dairy industry. The politically driven message was clear: Chinese manufacturers are just as safe and a lot cheaper.